Key Points

The report highlighted that similar trends are visible in other emerging markets as well. Alongside India, Bank Indonesia also has room to ease rates further, thanks to the softening of the US dollar.

It stated, "US dollar weakness has created real room to cut rates for both Bank Indonesia and the Reserve Bank of India".

For India, the disinflationary trend has become increasingly visible. Consumer price inflation averaged 4.6 per cent in the last financial year and dropped to just 3.2 per cent in April this year, the lowest since July.

This fall in inflation has increased expectations of further monetary easing by the central bank.

Jefferies says that since Sanjay Malhotra took charge as the new RBI Governor in December, replacing Shaktikanta Das, the central bank has already cut the repo rate by 50 basis points.

Malhotra's approach is seen as more dovish, with the market interpreting the inflation trend as positive for equities due to the greater potential for rate cuts under his leadership.

It said "The same disinflationary trend is increasingly evident in India, though for now it is interpreted as bullish for equities in terms of the potential for RBI rate cuts under the more dovish RBI Governor Sanjay Malhotra".

In its latest Annual Report, RBI projected average inflation of around 4 per cent for the ongoing financial year, which ends in March 2026 (FY26).

However, Jefferies' India office believes there is room for an additional 75 basis points of rate cuts by the end of 2025, assuming the current economic and currency conditions persist.

This outlook, supported by easing inflation and global currency trends, could boost domestic growth and improve the investment climate in the country.

The Reserve Bank of India (RBI) in the April Monetary Policy Committee (MPC) meeting had announced a 25-basis-point (bps) cut in the repo rate, reducing it from 6.25 per cent to 6 per cent.

- ANI